Budget 2018: Stabilising domestic pharma business to revive growth

Pharmaceutical export is likely to see growth spurt to 11-12% on-year in fiscal 2019, after a flat fiscal 2018, on the back of new product launches with marketing exclusivity.

Crisil Research

Better product pipeline in regulated markets and stabilising domestic business to revive growth in fiscal 2019

Domestic formulations market is expected to record double-digit growth of 11-12% in fiscal 2019, riding on a low base and strong demand in chronic segments.

Strong mid-double-digit growth in chronic segments such as anti-diabetic and cardiology (constituting ~22% market share in fiscal 2017) will support industry performance in fiscal 2019.

Pharmaceutical export is likely to see growth spurt to 11-12% on-year in fiscal 2019, after a flat fiscal 2018, on the back of new product launches with marketing exclusivity. However, pricing pressure in the base business will limit incremental growth.

Launches with marketing exclusivity to aid margins of formulation players in fiscal 2019

Operating margins of formulation players are expected to expand by 200-300 bps on-year to ~21% owing to launch of exclusivity products (which fetch higher margins) by major players in the US market. However, margin erosion in base business and higher research and development (R&D) and compliance cost will limit margin expansion.

Margins of bulk drug players are expected to remain flat at ~20% on-year in fiscal 2019 as gains from better product mix (due to new launches in specialty segment) are likely to be offset by pricing pressure in commoditised active pharmaceutical ingredients.

Budget expectations

The industry expects government to increase weighted reduction of R&D from 150% now, to boost innovation and sharpen competitiveness of Indian players.

Benefit of R&D-weighted reduction should also be extended to outsourced R&D activities. Currently, only companies which carry out in-house R&D can avail of benefits.